Is it too early to go into Raffles Medical?

Is it too early to go into Raffles Medical?

Michelle Zhu
02/05/18, 11:20 am

SINGAPORE (May 2): RHB is downgrading its call on Raffles Medical Group (RMG) to “sell” from “neutral” with an unchanged $1.02 target price.

The move comes on a number of factors including RMG’s recent share price run-up since the group’s release of its 4Q17 results, as well as expectations of potential headwinds such as start-up losses from its China operations.

In a Wednesday report, RHB analyst Juliana Cai sees a “double blow” in the group’s earnings over FY19 as its Chongqing facility would still be in its ramping-up phase while the Shanghai hospital is scheduled to open over the same period.

While the management’s plan to allocate 100 beds in the Chongqing hospital at subsidised prices could help to cover some fixed operational costs, Cai highlights that this strategy currently seems to be delayed due to its difficulty in implementation.

Cai further notes that only 10% of the space in its new Raffles Hospital extension has been committed so far, and maintains the view that the bulk of its rental income would only come in FY19.

Looking ahead, she expects the group’s full-year revenue growth to remain modest at about 5% on-year, as she thinks Singapore is still “structurally challenging for healthcare players” especially given how the SGD remains strong, compared to regional currencies.

“We think Raffles Medical’s valuation is still expensive at this point, given the potential start-up losses from its China hospitals that are to come in 2H18 and FY19,” says Cai.

OCBC analyst Joseph Ng, however, begs to differ.

In his opinion, the start-up losses and consequent lower PATMI levels for FY18-19 forward estimates should have been “well-digested by the street” by now, as this was already guided by RMG’s management for a few quarters.

With the group’s overseas expansion plans on-track and the launch of its China hospitals getting closer within sight, OCBC has maintained its “buy” call on the stock with unchanged assumptions and a fair value estimate of $1.26.

See: Raffles Medical posts 1.7% rise in 1Q earnings to $15.8 mil

“Raffles Medical Group’s (RMG) 1Q18 scorecard was within ours and the street’s expectations. Top-line grew 4.6% y-o-y to $120.2 million, with 6.8% and 4.2% on-year improvement for the group’s Healthcare Services division and Hospital Services division, respectively,” notes Ng on the group’s latest set of earnings results.  

While Maybank analyst John Cheong thinks both of RMG’s upcoming China hospital should reignite earnings growth after the start-up costs in 2018-19 have passed, he thinks these costs would negate higher healthcare and rental income projected for FY18.

Noting a slight recovery in the Singapore market over the latest quarter, he maintains his “hold” call on RMG with an unchanged target price of $1.13.  

As at 12.54am, shares in RMG are trading 1 cent higher at $1.16 or 2.58 times FY19 book according to RHB estimates.

$1,379 – that's how much an elderly person needs to survive in the world's most expensive city

SINGAPORE (May 22): Just how much does a single, elderly person aged over 65 years who lives alone in Singapore need to cover his basic needs? Some $1,379 a month, according to a team of researchers led by assistant professor Ng Kok Hoe of the Lee Kuan Yew School of Public Policy (LKYSPP) at the National University of Singapore (NUS). If the name sounds familiar, it is because Dr Ng had in 2017 conducted the first count of Singapore’s homeless people. Singapore has shied away from defining a poverty line, or setting a minimum wage. But, for the first time, a group of researchers has....

3 key reasons for UOB's confidence in PropNex despite 1Q earnings miss

SINGAPORE (May 22): UOB Kay Hian is maintaining “buy” on PropNex while lowering its target price to 60 cents from 66 cents previously. The new target price is based on DCF and 2019F P/E of 10 times with reference to its closest listed competitor, APAC Realty, and comes after cutting net profit estimates by 11% to 15% for 2019-21F to reflect a shift in gross profit mix as well as higher staff cost assumptions. UOB’s downwards earnings revision follows the release of PropNex’s 1Q19 results, which fell short of expectations due to lower project marketing contributions as a result of....

6 protesters killed as Indonesia election rally turns violent

SINGAPORE (May 22): At least six people were killed and hundreds more injured in clashes between police and supporters of Indonesian presidential candidate Prabowo Subianto in the worst political violence to hit Jakarta in two decades. Jakarta Governor Anies Baswedan appealed for public order and urged police to exercise restraint and avoid conflict with the protesters in the capital city. About 200 injured protesters have been admitted to various hospitals in Jakarta, Baswedan told reporters. The violence is the worst since to grip the city since the downfall of Suharto in 1998. Protest....